Dec. 16 (Bloomberg) -- Natural gas fell for a second day in New York on speculation that milder weather will limit demand for the heating fuel.
Futures slid 1.7 percent as Commodity Weather Group LLC predicted that below-normal temperatures in the Northeast this week will give way to seasonal or higher readings Dec. 21 through Dec. 25. The low in New York will climb to 42 degrees Fahrenheit (6 Celsius), 11 above normal, on Dec. 20, according to AccuWeather Inc.
“We have been operating under a below-normal forecast for a while; now, we are going to break out of that,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We are getting normal temperatures over the weekend and that is putting pressure on the market.”
Natural gas for January delivery fell 7.2 cents to settle at $4.279 per million British thermal units on the New York Mercantile Exchange. Trading volume was 36 percent above the 100-day average at 2:34 p.m. Gas is up 28 percent this year.
January futures traded at a 0.7 cent discount to February from a 0.1 cent premium on Dec. 13. March gas traded 12.4 cents above the April contract, compared with 18.2 cents on Dec. 13.
February $5.40 calls were the most active options in electronic trading. They were 2.5 cents lower at 2.7 cents per million Btu on volume of 901 at 2:53 p.m. Calls accounted for 68 percent of trading volume.
“The big story today is the significant reduction of the Christmas week cold outbreak, as we are now only seeing some weak, transient cooling with more variability for a much-reduced demand impact,” Matt Rogers, president of Commodity Weather Group in Bethesda, Maryland, said in a note to clients today.
Temperatures 5 to 8 degrees Fahrenheit higher than normal are expected from eastern Louisiana to southern New Jersey from Dec. 21 to Christmas Day, Rogers said. Readings 3 to 5 degrees above the norm are likely through most of California into Oregon and parts of Washington.
About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm.
U.S. inventories fell by 81 billion cubic feet to 3.553 trillion in the week ended Dec. 6, more than the five-year average drop of 76 billion for the period, an EIA report last week showed. A supply deficit versus the five-year average widened to 3 percent from 2.8 percent the previous seven days. The EIA’s next supply report is due Dec. 19.
While a pullback in gas prices is “justified by the amount of length in the market, we are poised for some upside because you are going to get a rather large number on Thursday that is going to be well over 100” billion cubic feet, Yawger said.
Tim Evans, an energy analyst at Citi Futures Perspective in New York, expects a decline of 187 billion while Dominick Chirichella, senior partner at the Energy Management Institute in New York, is predicting a net withdrawal of 250 billion. The five-year average decline for the seven days ended Dec. 13 is 133 billion.
Hedge funds got more bullish on natural gas, betting the most on rising prices in 11 weeks as cold weather in the U.S. diminished fuel inventories, U.S. Commodity Futures Trading Commission data show. Gas prices jumped to $4.443 million Btu on Dec. 13, the highest intraday price since May 1.
Money managers boosted net-long positions by 82,574 futures equivalents, or 44 percent, to 271,068 in the seven days ended Dec. 10, a CFTC report on Dec. 13 showed. The total was the most since Sept. 24 as bullish wagers increased for a third week.
Marketed gas production will climb 1.8 percent this year to average 70.45 billion cubic feet a day, the sixth consecutive annual gain, as new wells come online at shale deposits, the EIA said in its Dec. 10 Short-Term Energy Outlook. Output at the Marcellus shale in the Northeast rose 2.1 billion to 12.3 billion this year from 2008.
U.S. gas output will grow steady through 2040 to reach 37.6 trillion cubic feet, 56 percent higher than total production in 2012, according to the EIA’s Annual Energy Outlook released today.
--With assistance from Brian K. Sullivan in Boston and Christine Buurma in New York. Editors: Bill Banker, Richard Stubbe